I always enjoy my encounters with the CBIs Sir Digby Jones, who is stepping down as the head of the business group. He is jovial, enthusiastic and has a great stock of excellent jokes. Yet his defence of capitalism, as until recently the voice of British business, made me gloomy. I hope his successor Richard Lambert will do better.
The case for capitalism or, as I prefer to say, markets, is not merely so companies can be creamed to pay for hospitals and schools. Markets are deeply mysterious entities which we have yet to understand fully.
Markets stand apart from much of the human institutional landscape because they were designed by nobody. Markets are spontaneous orders which pursue no hierarchy of ends ; that is, markets do not value certain ends over other ends like the state does. The quotes are F A Hayeks. In this sense the only analogy that seems remotely satisfactory is language.
The language of capitalism is that extraordinary mechanism for co-ordinating and signalling that is prices. Prices are the conversation that emerges between those who want to buy and those who want to sell.
At this point much of academic economics and most intellectuals go up a metaphorical cul-de-sac. They argue human beings will not attain equilibriums . Therefore the State can intervene and sort out the chaos of the market riddled with fantasy flaws such as imperfect competition or asymmetrical knowledge . Surrounded on all fronts by the failing agencies of the state, they home in on supposed market failure .
This is the wisdom of fools. Markets and prices are a mass of different perceptions and circumstances, a subtle web of individuals, or firms as agents of individuals, trying to guess tomorrows opportunities.
Consider the calumnies heaped upon that valiant enterprise Wal-Mart, or as we know it better, Asda. Those hostile to capitalism see a monster that forces wages lower, destroys town centres, congests nearby roads, and overcharges. I see an engine that creates hundreds of thousands of jobs and reduces poverty. Indeed Tesco in the UK and Wal-Mart in the US are the greatest poverty-reducing programmes history has ever seen.
The important, the defining, the crucial attribute of the role of Wal-Mart/Asda is that it is entirely voluntary. Nobody is coercing anybody. Indeed the reason it is such a huge success is that large numbers of us go there of our own volition. But even the largest corporations are utterly vulnerable to peoples choices. These may be whimsical or irrational. They may be a perceptive instinct for better options. We all remember Marks & Spencers dominance built on quality. Almost overnight it lost its magic. We went elsewhere at least for a while. What a wake-up call that was.
Contrast this simple retailing story with schools. These are the products of utterly different forces bureaucracy funded from taxation and built on the conscription of their customers . So much of education has been captured by the professions it is difficult to discern what parents or pupils want. At their meanest, some of our schools are little more than baby-sitting facilities. The students do not learn to read or write or count. Indeed as James Bartholomew, author of
The Welfare State Were In
, points out: Two out of every five street robberies are committed by 10- to 16-year-olds during school hours. So are a quarter of all burglaries and a third of car thefts. It begins to seem that schools are academies of crime .
Try to imagine a capitalist schools market. Would pupils need to attend the same location every day? Could they have personal tutors whose pay was linked to results? If parents were choosing would talentless teachers survive? Would the costs of schooling tumble? Would they learn French in France? Or deploy your imagination in reverse. If retailing had been invested in municipal Comprehensive shops and private ones suppressed how would they compare to Asda or Tesco or Morrisons or Waitrose? The thought of it makes me feel ill.
There are some rich paradoxes in capitalism. People of the Left burn with desire for equality . Yet in the absence of markets we become dependent on contacts, bribes, influence or status. We can see those in democratic pluralist nations are far more equal and upwardly mobile than those who live under fraternal tyrannies.
Step back from the day-to-day bustle. Which nations enjoy the most prosperity and peace? It is utterly unambiguous. It is the market or capitalist countries that flourish and their people get fed, clothed, housed and entertained. You might think North America and Western Europe are the freest economies on the planet. The Heritage Foundations
Index of Economic Freedom put Singapore and Hong Kong top of this league table. When I invite even our most senior captains of industry to extol capitalism they meander off into jargon about productivity or efficiency or GDP. Lord Kalms of Dixons got it but hes retired.
The truth is that a well-paid CEO is no brighter than a medieval farm labourer or Victorian fisherman or French musketeer. What he is rich in is price information. He is wealthy in data. This is what lifts him. From what is this data derived? From those to whom he is linked by trade. Note humans can trade with high mutual profit with those theyll never meet. If I enter one of Sir John Collins electrical stores such as PC World and emerge with the latest gizmo I need have no contact whatsoever with the dextrous hands in Taiwan or Cambodia who assembled it.
So, here is another point for capitalism: it links all of humanity in what Hayek termed the extended order . We all contribute in our own way to the system, speaking to each other in the dialect of prices. Globalisation is an ugly word for a lovely point in our evolution.
I identify the timidity or confusion of our senior capitalists to the fact they do not know what they do beyond their own terms of bottom lines, level playing fields or dividends.
We carry the mistakes of the past. Some of the most valued social roles have been surrendered to the State. Just about all of medicine has been captured by the politicians. Even British universities, with the bold exception of Buckingham, are all in the States armpit. So, the strands of life we might regard as the most important are outside the capitalist game. Capitalists, in this vision, are little more than the donkeys that pull the cart.
In their heart of hearts I think many top industrialists still carry the baggage of Marxism. They do genuinely believe they exploit, degrade or diminish. They see profits as zero-sum games. An exception is Lord Browne of BP. He observed that in business you want your customer to return. At one level this is a banality. Yet it is a crucial insight. In capitalism your relationship depends upon delivering satisfaction. The great cell structure of tiny transactions is what capitalism is really about. It is collaborative, participatory, mutual and, most oddly, equalising.
John Blundell is Director General of the Institute of Economic Affairs which will launch a new book on Wal-Mart by Professor
Richard Vedder of Ohio University, US. Mr Blundell does not own stock in any of the companies mentioned in this article.